JioPhone: Telcos may seek clarity on GST for bundled 4G handsets

Although Airtel, Vodafone India and Idea Cellular have not subsidised handsets so far, they could offer 'a scheme similar to what is being offered by JioKalyan Parbat | ET Bureau | July 24, 2017, 09:06 IST

The JioPhone comes with free voice service for life and can be obtained for Rs 1,500, which is refundable after three years if the handset is returned.India's top telecom operators are likely to seek clarification from the finance ministry on whether bundled 4G handsets offered effectively for free would attract the 12% goods and services tax applicable on mobile phones.

"Ideally, the government must determine the GST implications of selling a handset at zero price and provide guidance to telcos about the pros and cons of structuring similar handset bundling deals," Rajan Mathews, director general of the Cellular Operators' Association of India, told ET.

Reliance Industriesunveiled a 4G feature phone last week that may further disrupt an already stressed telecom market. The JioPhone comes with free voice service for life and can be obtained for Rs 1,500, which is refundable after three years if the handset is returned. Apart from the tax treatment, telcos may seek clarity on whether such financing schemes will enable operators to skip payment of licence fees and spectrum usage charges.

Although telcos Bharti Airtel, Vodafone India and Idea Cellular have not subsidised handsets so far, they could offer 'a scheme similar to what is being offered by Jio,' HSBC Global Research said in a note to clients. These telcos would have, at best, 4-5 months to come up with matching bundling offers.

Mobile operators, Mathews said, would definitely "look for clarity" from the finance ministry as any "potential imposition of GST on a technically free phone would increase the cost of similarly structured handset bundling offers in future."

"Someone can choose to offer anything for free, be it a handset or even a plot of land. But that doesn't mean the asset being offered is devoid of an imputed value, in that, the government can always go back to the company, determine a fair value of the asset and levy a tax," said a top mobile industry executive.A senior executive at a Big 4 consulting firm said whether the JioPhone, given to a consumer against a refundable deposit, amounts to a deemed sale is open to interpretation. "Even if it is not a sale, it can be construed to be a handset lease, in which case, it would attract GST. The government must clear the air on the issue… as other telcos could also be contemplating similarly structured handset bundling offers," the executive said.

While refundable deposits don't attract GST, a potential grey area could be the tax treatment on the amount if the phone is not returned after three years. To be sure, an importer of the phone would pay basic customs duty and iGST. Bharti Airtel, Vodafone India, Idea and Jio did not immediately respond to ET's queries on the matter.

The other issue is whether such deposits are included while calculating the licence fee and spectrum usage charges that operators pay to the government.

"It's for the government to determine what JioPhone offer at an effective sale price of zero means. The key issue is whether or not a one-time fully refundable deposit over a three-year span can be construed as revenue and included in a telco's adjusted gross revenue," said Mathews.